The Santos Ltd (ASX: STO) share price has surged higher in 2022, clipping a 22% gain in that time.
Despite recent volatility, one portfolio manager is still constructive on the share, noting the long-term upside potential.
Santos has slipped 4% into the red to $7.72 today on no news, as the S&P/ASX 200 Index (ASX: XJO) slides 2%.
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Compelling opportunity
According to Vince Pezzullo of Perpetual Asset Management, Santos is well-positioned to capitalise on market trends for the future.
The portfolio manager laid out the investment case for Santos.
[O]ur investment thesis is the leverage that Santos has to domestic gas and export liquefied natural gas markets as we believe these forms of energy are key to facilitating Australia and the world to transition to a lower carbon future.
A key driver of Santo's share price is global energy markets, he says, "and we have seen these tighten of late and oil and gas prices rallying," the portfolio manager wrote on Livewire.
"One of the ways it is looking to do this is through increasing LNG imports and Santos is a key global producer through its stake in the PNG LNG, Gladstone LNG, and Darwin LNG assets," he added.
Adding to the compelling opportunity are Santos' recent asset sell downs that have strengthened its balance sheet.
"Successful execution of all these sell-downs would see the company significantly exceed its target of US$2 – 3 billion in asset sales in 2022," Pezzulo opined.
This could blow out to 2023 however, due to various routine setbacks. Nevertheless, the portfolio manager is constructive toward Santos on a number of levels.
Brent crude oil still buoyant at US$118 per barrel alongside surging gas markets are also key components, Pezzullo said.
"We would welcome these sales as it would significantly cut Santos' capital expenditure, improve its cash flow and potentially lead to a re-rating of the stock," he concluded.
In the last 12 months, the Santos share price has held onto a 1.5% gain.
